Sep

2

Is an asset up or down? How do you decide?

For a somewhat offbeat reason we need an unwavering determination as to whether or not a particular asset was up or down. We do not care how much. Obviously if something is up or down by say 2 percent, there is no argument. The problem is if the data is not definitive. After all, you occasionally have days when the Dow or S&P are one way and the Nasdaq is the other. So which one is right?

The standard is, of course, the close. That would be right in many ways. Most volume occurs at or near the close, and margin calls are determined by the close. But many [technicians] use midrange, or an average of the High, Low and Close. Institutions have been known to care about the volume-weighted average price or VWAP. A priori we thought VWAP would be best for our purposes. But we were wrong.

Ours was a very limited study. We only cared about 4 assets (all ETFs): SPY, IEF, GLD, IYR. And our definition of right vs. wrong is the amount of flip-flopping during a trend. That is, how often is it wrong? We realize this is all very subjective, but we are not writing a thesis here - we just want the quick and dirty facts. The period we considered: 2005 through the present.

It turns out that VWAP is not best. It gives a lot of false signals. This was good news for us as we will not have to acquire VWAP data.

That's all we really cared about. However the fact that institutions take care in getting VWAP price executions and the fact that VWAP (at least in the limited study) gives false information, suggests that someone (a flexion, perhaps) has something at stake to effect the false information.


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